Affordable housing is a priority sector for the Indian government, and the GST regime provides a concessional rate of 1% for affordable residential apartments. This concession is designed to reduce the tax burden on homebuyers and promote affordable housing development.
This article explains the GST treatment of affordable housing projects, including the conditions for the concessional rate.
Definition of Affordable Residential Apartment
An affordable residential apartment is defined as:
- Carpet area up to 60 sq. m. in metropolitan cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, and Pune).
- Carpet area up to 90 sq. m. in non-metropolitan cities.
- Gross amount charged not exceeding ₹45 lakh .
Both conditions must be satisfied for the apartment to qualify as affordable.
GST Rate for Affordable Housing
Affordable residential apartments attract GST at 1% , without input tax credit (ITC). This rate applies to under-construction affordable housing.
For other residential apartments, the rate is 5% , also without ITC.
ITC Restrictions
Developers of affordable housing projects cannot claim ITC on inputs and input services used in construction. This restriction is a trade-off for the concessional rate.
Developers must procure at least 80% of inputs and input services from registered suppliers. If they fail to meet this threshold, they must pay GST under RCM on the shortfall.
Mixed Projects
In projects with a mix of affordable and other residential apartments, the developer must apportion the ITC and apply the appropriate rates. This requires careful accounting and documentation.
Compliance for Developers
- Determine whether the project qualifies as affordable housing.
- Charge 1% GST on affordable apartments.
- Procure at least 80% of inputs from registered suppliers.
- Pay GST under RCM on any shortfall.
- Maintain proper records of area and value for each apartment.
- File GSTR-1 and GSTR-3B.
Conclusion
Affordable housing projects benefit from a concessional GST rate of 1%, but this comes with ITC restrictions and procurement conditions. Developers must ensure compliance with all conditions to avoid penalties.
At Anuj Desai & Associates, we provide expert advisory services on GST for affordable housing projects. Our team can help you structure your project, comply with the concessional rate conditions, and optimise your tax position.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.